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  • Discounting the obvious

    July 27, 2012 @ 10:45 am | by Neil Briscoe

    The European car industry is tying itself in the same knots as US car makers did back in 2009, offering deep discounts and incentives in a desperate attempt to keep expensive factories turning, despite the fact that it’s clear there are not enough buyers for the cars that are being built.

    It’s a position that we have been slowly drifting towards for many years now. Over-capacity, the fact that there is space and investment in the factories to build more cars than there are people to buy them, has been hovering, shadow-like, over volume western European car makers for well over two decades now, but until the current financial crisis hit, there was always just enough heat in the national economies to keep sales flowing and the money coming in.

    Now, though, the European car market is continuing to contract, and it’s leaving the ‘traditional’ volume makers badly exposed to chilly economic winds. So, out come the discounts because in the minds of some makers, it’s better to be selling something, anything, even at a slim profit or even a loss, as long as it keeps those expensive factories, with their high-cost labour, working and turning out metal.

    But it’s a honey trap and deep-down, the car makers know it. Offering juicy incentives and price cuts might appeal in the short term to buyers, but such actions have serious consequences. An impact on residual values is just the start of it, but there’s also the subsequent raised expectations of customer value. After all, if you can buy a car for 10% off this year, why not 15% or even 20% next year? And cars aren’t like sofas or televisions. Whatever the blaring ads from the retail park superstores may tell you, the discounts on TVs and furniture don’t amount to much when the cost of making them is so low. Cars aren’t cheap to build, and profit margins in the broader car industry are as low as 3-5%. Knock a few discounts off of that and suddenly everyone, from the dealer right the way back up to HQ, is making a loss.

    Mark Fulthorpe is an analyst at industry watchers IHS, and he told me that the succession of discounts is a worrying sign in the European car market.

    “It’s becomes slightly nuanced. In the short term, discounts can be a positive in keeping those fixed assets, the factories, moving. There’s a danger if the industry becomes reliant on it. Effectively that’s what happened in the US market. We saw the passenger car market starting to slide and when the heat went out of the light truck market, we saw massive and unsustainable incentives being introduced.

    “If it becomes ingrained, it’s a weakness. Discounting is a plausible response if it’s to ride out a short term problem, but given some of the fundamentals, we would see at as potentially, as you put it, ‘floundering around’ unless restructuring is also part of the plan.”

    Restructuring is a dirty, unuttered word in much of the western European car industry, with car makers caught between a devil of falling sales and plummeting profits and deep blue seas of national pride, political pressure and expensive labour contracts. So far, only Fiat (which has already closed down one factory, and may do so with another) and PSA Peugeot Citroen (which is currently wrangling with the French government over its restructuring plans) have begun to grasp the nettle of making their operations leaner and meaner. Fiat boss Sergio Marchionne reckons that everyone is waiting for the others to blink before committing to costly (both in the financial and political sense) restructuring plans and that it may take the bankruptcy or collapse of a major player to trigger the broader process.

    If a major car maker, went to the wall, would that be a relief valve for the rest of the industry? Not so, says Mark Fulthorpe: “If a major OEM (Original Equipment Manufacturer – analyst speak for a large car company) went to the wall, it would alleviate the problem in the short term, but it wouldn’t be a panacea. I think there’s something deeper, the over-capacity is more deeply ingrained, across the board. Anecdotal evidence suggests that if a major player went bust, that would only account for about 25% of the over-capacity in Europe.

    “We see 2013 as still being very much a pinch-point. There’s the potential for a lot of volatility up to the middle of next year in the Eurozone, but we would hope to see a pick up in demand by certainly the latter quarters of 2014.”

    And even if the over-capacity issue could be tackled, there would still be the issues of increased competition for the once-mainstream players.

    “Some of these problems have their roots in ’09, and then there’s the trend of the premium brands moving into volume sectors” says Fulthorpe. “They’ve essentially taken over the D-Segment (cars of the likes of the Ford Mondeo and Toyota Avensis) and now they’re moving into sectors below that and that will continue to apply pressure to what we would traditionally have called the volume brands.

    “As will the growth of the Koreans. Their capacity investments have been primarily made in central and eastern Europe, where the labour costs are much lower, so they’ll continue to enjoy that benefit, and continue putting pressure on factories in western Europe, where thanks to legacy issues, costs are much higher.

    “As well as discounts applied by OEMs, don’t forget that both Italy and France have been effectively supporting their national car markets with incentives for around 15 years. It makes us nervous about incentives.”

    So while a car buyer today will be delighted that you can currently get up to €5,000 off the price of a new car, even one from brands that are actually doing well right now, including Volkswagen and Skoda, the price for the economy as a whole may be a steep one to bear, not least because of the highly-skilled and paid jobs that would be lost in the process, and the subsequent brain-drain that would be more or less inevitable. Europe has already lost so much of its ability to build ships and aircraft. If we let cars go too then what hope for economic growth? Service economies are all well and good, but to make real money you have to make real things.

    Yes, it’s nice to be able to buy a new Renault Laguna and get a free Twizzy electric car thrown in (a current deal being offered in the Spanish market) but it’s all just a desperate attempt to paper over major cracks in the foundation of the European car industry. And all of the big players are about to find out that ruthless, Darwinian economics doesn’t pay any heed to fripperies like discounts. The value of a product lies only in what people are prepared to pay for it, not in what they could save.

  • The death of design?

    July 20, 2012 @ 1:01 pm | by Neil Briscoe

    When Sergio Pininfarina passed away a couple of weeks ago, an era of motoring passed with him. Possibly motoring itself, in some way, at least as we currently know it. Sergio, the son of Battista ‘Pinin’ Farina (the Pinin is a nickname meaning little, and Sergio would change the family name by Italian presidential decree to include it) took over the running of the family car design firm in 1961, and then set about changing our motoring lives.

    You’ve driven a Pininfarina car. Been a passenger in one. Or at the very least lusted after one. The company and the man were most famous for working with Ferrari, starting with the 1955 410 Superamerica, and reaching wild peaks of beauty with the 1965 Dino 206 and the glorious Daytona. But more humble cars car benefited from the Pininfarina pencil. My personal favourites are the original 1966 Alfa Romeo Duetto spider (utterly beautiful, surprisingly rugged) and the 1997 Peugeot 406 Coupe, a diesel version of which I have an odd and abiding fetish for. Peugeots 205, 405 and 306 were Pininfarina styling gigs and others such as Chevrolet, Honda, Volvo, Mitsubishi, Fiat (of course) and even Rolls-Royce and Jaguar have benefited from Pininfarina’s work at some time or another. Just look at the photo of him, above, in his sixties heyday. Perfect suit, perfect hair, studying the line of the original Maserati Quattroporte. When Italians make things look good, be they cars, buildings or people, they do so better than any other nation.

    Sergio took the firm from a simple design house to a full-on car maker, building cars under licence for Ford, Volvo and Peugeot amongst others. That 406 Coupe that still tugs my heart may have had a French engine, but its oh-so-perfect body was made in Italy.

    Design guru and car nut Stephen Bayley agrees that Sergio was a truly unique designer and engineer. “There are so many great Pininfarina cars that it’s almost like trying to choose your favourite Beatles number. No-one has ever understood the artistic possibilities of a car body better than Pininfarina. If you had to pick one single thing, then it’s the early 1970s Ferrari Dino; exquisite, measured, delicate, perfect, feminine, sexy… Everything I want from a car or even people, really.

    “The extraordinarily significant thing is that if you take the long history of car design there were two really important stories. One was the American tradition, which was born in Detroit and went for razzmatazz and then died out in the sixties; there have been no great American cars since about 1967. And then there was the Italian tradition, which came out of the old coachbuilding firms, literally carozzeria, in Turin and Milan. And they turned the design of car bodies into, literally, very high art. There’s no question in my mind that in pure aesthetic terms, Pininfarina’s achievements are the equal of any art of the 20th century.”

    And it’s a curiously democratic type of art too. Art galleries these days may well be free-in for most of us, and the idea now is to throw open to doors to ‘the people’ but it was not always so, and it’s still the case that in a gallery, you are expected to be quiet, respectful and not drop your ice cream wrapper. Pininfarina’s best work can be seen on the road though, where you can whoop and holler with sheer delight at it. True, you may not often see an Alfa Spider or a Ferrari Daytona swing by, but even the humble Peugeot 205 has a light-fingered grace that is so lacking in cars these days.

    And it’s Sergio Pininfarina’s passing that really puts the concrete plug on the era of truly beautiful cars, or at least that’s how it feels at the moment. Look around you on the road. Are there any cars that you could honestly see parked naturally next to a Renoir or Matisse? I have an affection for the often challenging work of Chris Bangle at BMW but while striking, you could hardly call his work beautiful. All modern Audis merely loom and hulk, Mercedes are over-styled to the point of parody. Mainstream cars have long since given up the beauty race and instead ornament themselves with silly gaping grilles and tiresomely large wheels in a desperate search for ‘brand identity.’ Pininfarina didn’t give brands identity. He gave them longing.

    “That moment’s over” says Bayley. “For two reasons; partly because we’re five minutes to midnight for the motor car and secondly because the remaining successful car companies have learned all the lessons that Farina could teach them. They’ve all got in house designers now, so there’s something terribly elegiac about the passing of Sergio Pininfarina. It’s the death of a great artist, a great entrepreneur, but also the end of a particular historical moment.

    “We’re at a moment of historical crisis, in terms of culture, art, consciousness. To an extent, the line of beauty in car design became exhausted. We’ve run out of great shapes. Pininfarina did his best work for Ferrari, indisputably. But, you know, Ferrari hasn’t produced a really beautiful car since, we could debate this, but I think certainly in my case since the early 1970s. That version of beauty, alas, is no longer relevant.

    “What’s charming about the whole Pininfarina story is that, at one time, clueless manufacturers, like Austin and Morris in the British midlands, needed an idea for what their God-awful new car should look like, and they’d hire Farina to do it. And he would nip up to Longbridge or Cowley with an armful of sketches and say ‘this is how it’s done.’ And they’d all gasp and say ‘my God, this IS how it’s done’ and they’d go and do it. But that moment is now passed. We’ve got two or three colleges around the world producing great, or at least very competent designers. Even with the extraordinary talent of Sergio Pininfarina, he couldn’t outlive his historical moment.”

    He couldn’t but, for a few more years, his cars will. The sixties and seventies wonders are now rightly revered classics. A few rusty (and some very well kept) eighties examples are still on the road and the ones from the nineties are still providing solid service. Sergio’s last personal design, the 2003 Maserati Quattroporte will this year be replaced by an all-new model, still a Pininfarina design, but not penned by the man himself. We nearly lost the company entirely recently, as hostile banks took themselves a slice, leaving the family only a token ownership, although it is expected to return to financial health soon enough.

    Whether it does or not, the beauty of motoring is gone. Just as aviation gave way from the sci-fi designs of the sixties and seventies, and the wonder of flight to the dour aluminium tubes and Ryanair cattle markets of today, so car design seems to be heading towards a point of commonality, a point where someday, someone is going to say ‘that is what a car should look like’ and that will be that.

    It’s unlikely to be the shape of a 1966 Alfa Spider, and more’s the pity.

  • We’re tackling the wrong problem

    July 11, 2012 @ 4:21 pm | by Neil Briscoe

    There is something I have become deeply sick of in the past short while. It’s being told what the official chocolate bar, cereal, washing detergent and cat litter of the Olympics is. Yes, I’m sure that the cost of putting on this contest of running, jumping and drug taking is immense and must be recouped somewhere, somehow but please; enough. Whatever kudos and gravity the Olympic ideal once represented has been long since denuded by the fact that McDonalds is a major sponsor.

    Something else I am rather sick of is the constant exhortation of electric car evangelists that the car buying public must be educated in the ways of battery powered transportation. All well and good, you might think. Education is, after all, one of the few unmitigated goods in the world. It’s always a good thing to be learning. But learning how to use a car? Sorry, but we’ve done that. Been doing it since 1886 and it actually works pretty well, most of the time.

    The hidden meaning in that ‘education’ about electric cars is that actually, what it means, is that you have to learn about their shortcomings. About range anxiety (a real issue, whatever the denials of such) and about how to use the arcane and impenetrable recharging networks. Assuming you can find a charging point, which right now is actually pretty unlikely.

    Before I continue, let me state (as I constantly have to) that I’m not against electric cars nor do I believe that they are white elephants or useless in any way. I just believe, quite strongly, that they are not yet fit for purpose, being too short in range and too reliant on a nationwide charging network that the ESB has been promising for three years now yet which has still not materialised to any great extent. Education isn’t much good to you when you’re sitting on the hard shoulder, out of juice in your batteries. If you live in town, have a driveway and only cover about 100km in any one journey, then fine, an electric car might just be perfect for you and if that described my daily routine, then I’d be straight down to the nearest dealer and have a deposit down for a battery car.

    But for the most of us, even in a nation that is increasingly urbanised, electric cars just don’t work. And the protestations from the electric car enthusiasts that they must be considered as part of a broader transport strategy simply don’t stand up. I live 10km from the centre of Galway yet the bus service from here to town runs just once an hour. Trains don’t stop here. Trams were junked in the sixties.

    All this raised its head again this week when the Fully Charged electric car conference rolled into town. I had a chat with Heike Barlag from electric experts Siemens. She’s heading up the EU’s Green e-Motion project, which seeks to tie together all the national electric car initiatives into one coherent whole. Except it doesn’t. They can’t even agree on a standard plug yet:

    “Standardisation is an important topic and we have a whole work package dealing with that. The point is that the plugs are a very visible problem. The point is not they are not standardised but they are of different types, so that in Europe we have to agree on one type” said Heike. “There are several initiatives dealing with that and Green e-Motion is part of that process, so we are trying to find a common solution. But this is not a technical process but a political one, so it will take time.

    “How long? I cannot say that.”

    Great. So even if I buy an electric car and even if I can find somewhere to plug it in, there’s no guarantee that the plug will fit. And no amount of education will fill that gap.

    As Conor Faughnan of the AA said at an electric car event last year, “You cannot bring the market to a product. You must bring the product to the market.” That’s why Apple’s iPhone became so massively successful; people just picked it up and found that it intuitively worked. It was simple, even fun. That’s what electric cars have to aspire to; something that fits peoples’ lives, not finding people whose lives fit it.

    Actually, I think that part of the problem is looking at the wrong problem. Electric cars have become significant because we are all under the cosh to reduce our Co2 emissions, and none are more under the cosh than the motor industry. Because emissions are only recorded at the exhaust (and not in the manufacturing process or at the power station providing the electricity to charge the batteries) EVs look great to car makers. Why? Because their Co2 emissions levels, from a regulatory point of view, are measured as an average across the range, so that a 0g/km electric car effectively counterbalances a hulking 250g/km SUV. But the car makers are stuck in a loop of building heavy, steel-bodied cars in which electric powertrains make little sense.

    Even a small car now typically weighs over a tonne, and it’s that weight that’s killing the electric car’s chances. The reason mobile phone batteries were able to shrink and to last for ever longer stretches was not so much because of improvement in battery tech (although that helped) but mostly because of smarter software and hardware that was able to work with lower and slower power drains. That’s why the batteries of the latest generation smartphones are not as efficient as the old Nokias we all used to have; those bright full-size screens and constant Twittering really run down the battery.

    So it is with cars. Drop some weight and batteries could provide more performance and longer ranges, while conventional diesel and petrol powertrains would become ever more efficient. And that’s not just my opinion. Gordon Murray, the genius (and I don’t use the word lightly) behind the seventies and eighties Brabham and McLaren Formula One cars, the legendary McLaren F1 supercar and the ultra-efficient new T25 experimental city car reckons that weight reduction is the true key to reducing a vehicle’s impact on the planet around us, and it was the key design challenge for this new T25. Speaking to the BBC, Murray said that: “It was nothing to do with the environment, nothing to do with the quality of the air, greenhouse gasses didn’t come into my mind. It was purely ‘this is not sustainable and this is not fun anymore, so what can we do? What would solve that?’ The only way is to encourage people to go smaller and lighter.

    “With all the promises of hydrogen and hybrids and electric cars, if you could take 10% out of the weight of every car, the effect in the next ten years, just that 10%, would be more than the effect of all the hybrid cars and electric cars on the planet.”

    Best of all? No education of the driver is necessary. No change in habit. No lifestyle shift. Like all the best engineering ideas, lighter cars would just slot into your life as if they had always been there, as if you had just been waiting for them to happen. Electric or otherwise, we’d all benefit.

  • Venezuelan Idyll

    July 3, 2012 @ 10:24 am | by Neil Briscoe

    You’d have to move to Venezuela.

    Sorry, I gave the answer there without asking the question first. The question was, what would you have to do to justify buying an Opel Insignia OPC?

    You see, a litre of 95RON unleaded petrol in Venezuela, thanks to that country’s vast oil deposits and the egalitarian (if that’s the word) policies of its famed president, Hugo Chavez, costs just USD$0.02. That’s two cent. So filling the 70-litre fuel tank of your hot Opel saloon would set you back $1.61. Or €1.29. As compared to €111.30 if I were to hop up to my local Texaco right now and fill it up from dry.

    Sorry to mix Yorkshire and Venezuela (and I’m from neither) but when I were a lad, cars like the Opel Insignia OPC were my genuine dream machines. And there were a lot of them back then; hot, fast saloons based on humble family haulers. The Ford Sierra Cosworth was, of course, king of the pack, but there was also the Peugeot 405 Mi16, the short-lived but wonderful Rover SD1 V8 Vitesse, the rare and oddball Renault 25 Turbo and the various SRI and V6 versions of the old Opel Vectra. There were some intriguing bit-players such as the 2.0eGT Nissan Primera and the early turbo version of the Subaru Legacy, although probably the less said about the Citroen BX GTI the better…

    Their recipes were simple ones; spacious and practical saloon (or hatchback in the cases of the Rover and Renault) bodies with beefy turbo or high capacity engines shoehorned in. If you were lucky, you got vaguely tuned suspension and some uprated brakes. Sophistication was in short order, but you got cars that could cover ground at eye-watering rates and which could still carry four big lads and a boot full of luggage. I loved them all. Still do.

    The Insignia OPC is a different beast. For a start, sophistication is served as the entreé, soup, fish course, main, desert and as a petit four with the coffees. It’s powered by a V6 twin-turbo 2.8-litre engine (the last flickering ember of GM’s ownership of Saab…) developing 325bhp compared with the 200bhp if you were lucky, on a clear day with a following wind, that you would have gotten from my childhood heroes. The suspension, suitably tweaked and lowered all round and bolted to the back of mean-looking grey-powdered 20” alloys, uses Opel’s brilliant FlexRide damper, which uses electromagnets (no, really) to constantly alter the stiffness of each corner and which manage to keep you both glued to the ground and comfortably cosseted at the same time. Witchcraft, we’d have called it way back when.

    Then there’s the adaptive all-wheel-drive, the switchable throttle and steering weights, the massive Brembo brakes etc, etc and so on. In other words, it’s a world away from the cars I dribbled over as a youth.

    And yet, it retains an animalistic, genetic link to those lairy old four doors. It’s quick (bastard fast, I’d have called it back then if you can forgive such an uncouth phrase) even if it feels more languid in its performance than you expect. Until you look down at the speedo and then up at the flashing blue lights in the mirror. The performance is curiously short of drama, speed building rapidly but linearly with none of the aggressive kick in the back that you’d get from a BMW M car or Mercedes AMG. Then again, neither of those brands can provide the sort of peerless all-weather security and confidence that the Insignia’s all-paw 4×4 system grants it. It is an effortless car to drive, never bumping or jarring unnecessarily, but equally capable of covering ground at a pace unmatched expect by helicopter. And the howitzer bang from the exhausts when you shift up under hard acceleration is just brilliant, in a deeply childish way.

    But is there a point? That’s the question that’s been troubling me since the keys were crowbarred from my hands. In modern Ireland, where we’re all broke, where the 249g/km Co2 figure looks woefully out of touch and where there’s a GATSO van in every hedge, who will buy an Insignia OPC?

    According to Opel, probably no-one, realistically. It’s there purely as a halo model, a demonstration of what Opel’s engineers can do when let off the leash, and as such, putting the Insignia in a unique position in the saloon car marketplace. It’s the only family four door that can match the likes of an Audi S4 or BMW 335i if you’re prepared to stump up the €53k asking price. The likes of the Ford Mondeo, VW Passat, Toyota Avensis or Peugeot 508 do not have a weapon in their respective armouries to match the OPC’s megaton punch.

    Fair enough, and as a 325bhp marketing exercise I can see the appeal. But, as a practically minded man, I’m struggling to see any point beyond that. And that also applies to the likes of the BMW M5, Audi RS4, Mercedes E63 AMG… All fabulous cars, towering engineering achievements but strangled and constrained by the economy and the law.

    I’m just starting to think that there has to be a better way. Yes, I want to enjoy my driving, but I honestly don’t want to destroy the planet as I do so (or, more accurately, be singled out by friends as doing so, ahem). Surely, within the fevered minds of motoring engineers, there exists a way to create a car that has the pace and poise of the Insignia OPC yet which uses fuel at a more sensible rate and which keeps its purchase and tax costs within reasonable bounds?

    Not yet, perhaps, but I feel that day may be coming. Lexus’ really rather terrific new GS450h is a possible signpost on the way (soulful sound, punchy performance, titchy emissions) but it’s still on the expensive side of costly. Renault has been making some sotto voce noises in recent weeks about investigating the potential for high performance electric cars. Interesting…

    Essentially, I suppose, I want to have my cake and eat it. I want my practical, percussive performance saloon, but I don’t want to have to pay through the nose for it nor feel guilty merely for driving it. So it’s either wait for the car makers to catch up with my dream, or start pestering Senor Chavez for a visa.

    Come on Hugo, old son. Help me out. I’ll throw in a tank of fuel to sweeten the deal…

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